Direct Line, are the Sid's back?

Back in the 1980's when privatization was all the rage for the Conservative Government, Sid was chosen as the campaign name of the imaginary ordinary bloke in the street who just might be interested in buying into the nationalised industries that were being sold off.  Millions joined in, often selling for a quick profit as they were priced to sell, BT, UK water, and British Gas to name but three (UK Water ad below).

Such IPO's, especially ones where the public are invited to buy are now rare.  Direct Line Insurance is the latest big IPO, which while not owned by the Government, is owned by RBS the bank saved by the taxpayer from going under back in 2008. In effect, the Government does still own 83% of  RBS and it wouldn't be around today if it wasn't for the taxpayer.


In the run up to the IPO there was much talk about whether Direct Line was a good buy or not, would it be priced right, should the "sid's" get in at the start.  The last big Government sell off was QinetiQ by the Labour Party. However, anyone buying into that IPO and still holding remain underwater on their investment as only now are the shares getting back to the original price they sold at 7 years later.

Direct Line has its critics, much of the pre-IPO analysis has suggested it should be avoided. Some have even suggested that rival RSA is a better bet. Whatever the analysts are saying, it doesn't appear to have put off the Sid's.

Thousands of small investors have ignored analysts’ warnings about the flotation of Direct Line to place orders for shares in the insurer’s stock market debut later this week. 

Retail brokers Hargreaves Lansdown and The Share Centre said they had seen a surge in last-minute demand for Direct Line shares ahead of yesterday’s midday deadline to place an order for the shares.

Retail investors had been required to place a minimum order of £1,000. The Share Centre said it had seen a 60pc increase in demand over the weekend, while Hargreaves Lansdown said orders had “run into the thousands”. 

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/insurance/9597263/Investors-flock-for-Direct-Line-shares.html

Time will tell if it is a good buy or priced right. I'll be surprised if it is not priced to sell, the estimated dividend yield is about 6% and Sid punters may well see an immediate profit on their buy, but like QinetiQ there is a chance that this one might sink back soon after. Insurance is hardly the flavour of the month in the market at the moment, it's a very competitive market and one where future growth might be difficult. There are many big name companies in the insurance sector on relatively low P/E's with big dividend yields as potential attractive alternatives. Of course, there are different types of insurance companies, Aviva with its potential exposure to Euro debt is not the same as RSA, but right now the market doesn't seem to like to pay too much of a premium for these companies.  It will be a surprise if Direct Line bucks that trend.